Financial life in a big town

A drop in Chinese exports, sliding German factory orders and falling prices in Japan underscored the weakness of the world economy, as the IMF said governments were too slow in ridding banks of toxic assets.

Switzerland’s UBS AG highlighted the depth of distress in the banking industry. The world’s biggest wealth manager said on Wednesday earnings would remain at risk for some time as it revised up its full-year net loss to 20.9 billion Swiss francs ($18.1 billion).

But European stocks bounced back from early losses. At 7:15 a.m. EDT, the pan-European FTSEurofirst 300 was up 0.7 percent and futures for U.S. equity markets were between 0.6 percent and 1.4 percent higher.

“So weak of late … the market has been latching on to the idea that financials have priced in the worst. The market has digested UBS and decided they are not as bad as expected,” said Bernard McAlinden, strategist at NCB Stockbrokers.

International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn said he was still expecting the world economy to recover from mid-2010, but only if governments move quickly to implement stimulus measures and banks’ balance sheets are cleared of toxic assets.

“On the (bank) restructuring side things are really lagging … I’m afraid that if it goes that way for two or three more months then recovery in 2010 will be difficult,” he told Reuters in an interview.

Finance ministers from the G20 group of rich nations and emerging powers will meet this weekend in Britain to prepare for a summit in London on April 2, where leaders hope to present a united front in tackling the crisis instant payday loans.

However, divisions have emerged with U.S. policymakers calling for more action to stimulate economies but European officials saying they have done enough already.

Treasury Secretary Timothy Geithner is due to hold a news conference ahead of the G20 meeting at 12:00 p.m. EDT.

The effects of the economic downturn are being felt on global trade flows, with China reporting its trade surplus shriveled to $4.84 billion in February, much lower than analysts had expected.

Exports fell by a quarter from year-ago levels, the biggest drop since bankers started keeping records in 1993.

BEST EFFORTS

“China has finally and spectacularly succumbed to the world financial crisis on the export side, and it’s difficult to see why that would improve in the short term,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

Governments are pumping money into their economies and central banks are slashing interest rates in a bid to prevent recession turning to slump.

South Korea plans to introduce a supplementary budget worth $20 billion this month to boost domestic demand, the ruling party was quoted as saying. 

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Teetering General Motors is further away from bankruptcy today and closer to securing more than $6 billion in life-saving government aid after reaching a tentative deal with its union to slash labour costs.

GM of Canada Ltd. and the Canadian Auto Workers announced yesterday they had negotiated significant concessions affecting employees and retirees that will freeze their wages and pensions, increase personal expenses for health care benefits, reduce employee holidays and eliminate annual bonuses.

The cuts, which could mean hundreds of millions of dollars in additional savings for GM until the fall of 2012, are critical for the company’s survival plan and to qualify for loans from the federal and provincial governments.

Union negotiators, who are unanimously recommending acceptance, expect about 10,000 workers to ratify the concessions in votes at operations in Oshawa, St. Catharines, Windsor and Woodstock tomorrow and Wednesday.

CAW national president Ken Lewenza told reporters the union and GM reached the surprise deal after four days of talks because of the urgency in getting government approval and lifting a cloud of possible bankruptcy over the company so consumers become more confident in buying the automaker’s models.

"Let’s take the threat of bankruptcy off the table once and for all," Lewenza said after around-the-clock bargaining at the downtown Sheraton Centre.

"We’ve done our part. … All eyes must be on the federal and Ontario governments now."

Federal Finance Minister Jim Flaherty said the deal is important for GM in gaining government approval for public loans by the end of the month.

"There’s more to be done certainly in terms of reasonable assumptions about car sales, about the future of these companies, the Detroit Three, but this is a good step forward," Flaherty told CTV’s Question Period.

Last week, Flaherty said GM and Chrysler, another struggling automaker seeking government aid, would have to pass a "survivability test" including negotiating "competitive" compensation packages for workers with counterparts at U.S. unionized and non-union auto plants.

The financial woes of parent GM Corp., once the world’s biggest industrial enterprise, escalated last month as sales crashed more than 40 per cent in the U.S. and 56 per cent in Canada. GM’s auditors also revealed for the first time the company could not survive without massive government aid.

Other automakers are also experiencing serious problems because of the worldwide financial crisis that has tightened credit and choked sales.

GM said the deal with the union will make the company "much more competitive" and ensure its long-term viability.

"The agreement marks a positive further step in GM Canada’s restructuring plan submitted to the Ontario and federal governments," the company added in a brief statement.

"We compliment the CAW for their leadership to share sacrifices in these extremely challenging economic times."

Both sides would not estimate the value of the concessions but CAW senior economist Jim Stanford said the amount is more than the $400 million in the cost savings over three years that GM workers already gave up in their contract in 2008 same day payday loans.

He added the deal will cut labour costs by "several dollars" an hour and retain the competitive edge of GM workers in Canada over other auto employees in the U.S. under a range of currency rates between the two countries.

Average wages and benefits currently total about $69 an hour per GM worker.

The deal would extend the current three-year contract by a year to September 2012 and freeze wages and quarterly cost-of-living allowance for almost the entire term. Production technicians now earn about $34 an hour in wages.

Furthermore, workers would lose one more week of special holidays a year and a $1,700 annual bonus. The company will divert that money to pay for retiree health care costs.

Workers and retirees under 65 would pay a $360-a-year premium for health care for the first time plus contribute more for benefits such as dental services under the deal.

More than 30,000 retirees and surviving spouses would also face a freeze in monthly pensions and cost-of-living protection. Those older than 65 would have to pay a $180 annual premium for health care plus contribute more for long-term care and other benefits.

"That was difficult for us," said Lewenza. "The sacrifices are painful."

The union noted the deal is contingent on GM getting government assistance and a company commitment that it will maintain about 17 per cent of its North American production in Canada. GM is also moving up production of another car in Oshawa that it had delayed a few weeks ago.

In its negotiations with the Ontario government, GM has also indicated it needs public help in dealing with a massive pension fund shortfall because it is "unsustainable."

Economic Development Minister Michael Bryant, who has been working closely with both the CAW and GM, did not comment on the thorny pension issue but commended the union for becoming part of the solution.

"The next step is more intensive work with the company reviewing its restructuring plans as we continue to ensure that the public interest is protected," he said.

Progressive Conservative MPP Tim Hudak (Niagara West-Glanbrook), a possible frontrunner to succeed John Tory as party leader, said it was "a smart move" for the union.

"It was important for the CAW to come to the table with concessions if taxpayers are investing substantial sums in GM and Chrysler," Hudak said in an interview.

New Ontario NDP Leader Andrea Horwath acknowledged the union’s sacrifice but criticized GM management for "poor decisions" in the past.

Horwath added any provincial aid must contain provisions to protect jobs and she suggested taxpayers should own shares or hold a seat on the parent company’s board of directors.

"We need a say," she said. "That is not government money, it is taxpayers’ money."

With files from Bruce Campion-Smith, Robert Benzie and Tanya Talaga

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President Barack Obama now has the distinction of presiding over his own bear market.

The Dow Jones Industrial Average fell 20 percent since Inauguration Day through yesterday, the fastest drop under a newly elected president in at least 90 years, according to data compiled by Bloomberg. The gauge lost 53 percent from its October 2007 record of 14,164.53, slipping 4.1 percent to 6,594.44 yesterday.

More than $1.6 trillion was erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse. The president is in danger of breaking a pattern in which the Dow rallied 9.8 percent on average in the 12 months after a Democrat captured the White House, according to data compiled by Bloomberg.

“People thought there would be a brief Obama rally, and that hasn’t happened,” said Uri Landesman, who oversees about $2.5 billion at ING Groep NV’s asset management unit in New York. “It speaks to the carnage that’s in the economy and the lack of confidence in the measures that have been announced.”

A bear market is defined as a decline of 20 percent or more.

Buying shares “is a potentially good deal” for long-term investors, Obama said March 3. He compared daily fluctuations to a tracking poll in politics and said he wouldn’t adjust his policies just to meet market expectations.

Congress last month enacted Obama’s $787 billion package of tax cuts and spending on roads, bridges and public buildings. His 2010 budget indicated the government’s financial rescue may need another $750 billion after an initial $700 billion.

Getting Cheaper

The Dow average dropped 31 percent since Obama’s election through yesterday. The 30-stock gauge traded at 8.04 times annual earnings, the cheapest since 1995 and down from 10.06 times on Inauguration Day.

Citigroup Inc. led the plunge, losing 71 percent. The government proposed taking a 36 percent stake in the New York- based bank, cutting the percentage owned by shareholders. Detroit-based General Motors Corp. tumbled 53 percent after the largest U.S. automaker said it needs more government aid.

“It’s the Obama bear market,” said Dan Veru, who helps oversee $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. “We don’t know what the rules are in so many different areas the government is touching free instant credit report.”

The Dow average today gained 32.50 points, or 0.5 percent, to 6,626.94.

Bank Losses

The U.S. economy contracted at a 6.2 percent annual rate in the fourth quarter, the most since 1982, the Commerce Department said last week. Unemployment jumped to 7.6 percent in January, the highest since 1992, as Americans fell behind on their mortgages and banks seized homes at a record pace.

Losses at financial companies worldwide that grew to about $1.2 trillion sent the Standard & Poor’s 500 Index to a 38 percent retreat last year, the steepest since 1937.

“Prospects for recovery in the financial sector, despite all the government help, still seem rather remote,” said John Carey, who manages about $8 billion at Pioneer Investment Management in Boston. “We’ve had a weak economy for a couple of years, and we aren’t seeing the stimulus working at this point. That is what weighs on investors’ minds.”

The Dow average took eight months to decline 20 percent following the inauguration of George W. Bush, reaching the level on Sept. 20, 2001, nine days after terrorists attacked the World Trade Center in New York and the Pentagon in Washington.

Herbert Hoover

The crash of 1929 occurred seven months into the administration of Herbert Hoover, who presided over an 89 percent plunge in the Dow between September 1929 and July 1932, the steepest retreat ever.

Only twice has the benchmark gauge slipped in the 12 months after the election of a Democratic president since 1900, after Woodrow Wilson’s victory in 1912 and Jimmy Carter’s in 1976.

The Dow entered its most recent bear market on July 2, 2008, when a 167-point decrease gave it a 20 percent loss from its record 14,164.53 on Oct. 9, 2007. Unlike the Standard & Poor’s 500 Index, the Dow’s rally from its November low of 7,552.29 fell short of a 20 percent bull market gain, ending at 19.6 percent.

“Obama should be listening to the stock market more than talking to it,” said Kenneth Fisher, the billionaire chairman of Woodside, California-based Fisher Investments Inc., which oversees $22 billion. “He hasn’t gotten out of the gate well.”

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Treasury Secretary Timothy Geithner warned the U.S. recession is worsening, and the Federal Reserve said there’s little hope of an improvement in coming months.

Almost all U.S. industries saw deterioration in their business in January and February, with food and drug necessities among the few exceptions, the Fed’s Beige Book survey showed yesterday. Geithner said at a Senate hearing that “this is still a deepening recession and a deepening credit crunch.”

Confronted with a relentless slide in financial stocks, Geithner and Fed Chairman Ben S. Bernanke are trying to counter congressional opposition to more bank bailouts. They’ve warned there’s little chance of a recovery without a revival of lending and trading in securities backed by loans.

“People are tired of the feeling that we are putting money into the process with little visibility of the outcome,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, and a former congressional staff economist. At the same time, “the initial dose of medicine was totally overwhelmed by the disease.”

The Standard & Poor’s Financials Index dropped 0.75 percent yesterday to 92.06, its 13th decline in the past 16 trading days. The loss came on a day when the broader market rallied, with the S&P 500 index advancing 2.4 percent. General Electric Co. hit $5.73, the lowest level since December 1991, on concern about mounting losses at the Fairfield, Connecticut-based company’s finance unit. Wells Fargo & Co. reached a 13-year low.

‘Pulling Back’

“The deepening recession is putting greater pressure on banks and in response many banks are pulling back on credit,” Geithner said in testimony to the Senate Finance Committee. “Critical parts of our financial system are working against recovery.”

The strength of an economic recovery hinges on the government’s ability to supply financial companies with fresh capital to get credit flowing again, the Treasury chief indicated.

“The first really important thing we do is to make sure that banks have the resources they need to be able to provide credit to the economy,” Geithner said at the Senate Finance Committee hearing yesterday.

Geithner appears before the House Budget Committee today at 10 a.m. in his third testimony on the Obama administration’s fiscal proposals in as many days. President Barack Obama’s 2010 budget indicated that the government’s financial rescue may need another $750 billion after an initial $700 billion.

More Money

Bernanke, at a Senate Budget Committee hearing two days ago, said more funds may be needed beyond the $700 billion already approved, depending on the results of a review of the biggest 19 banks’ capital levels.

Geithner’s assessment of a pull-back in credit was reflected in the Beige Book my credit score. Lending fell across the U.S. and credit availability “remained tight,” the Fed said.

Ten of 12 Fed district banks reported “weaker conditions or declines” in their regional economies, and respondents didn’t expect a “significant pickup” until late 2009 or early 2010, the Fed said yesterday. Housing “remained in the doldrums in most areas,” the central bank said.

The recession and financial crisis have prompted Bernanke to start a $1 trillion lending program and buy $600 billion of housing debt, while the Obama administration is betting its $787 billion fiscal stimulus will reverse the economy’s slide.

Details Coming

Geithner also said yesterday that details on a separate $1 trillion program to remove distressed mortgage assets from banks’ balance sheets will be coming within the next two weeks.

Economic data yesterday indicated little chance of a rebound soon. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, fell to 41.6 from 42.9 in January. Readings below 50 signal contraction. The ADP Employer Services survey showed employers cut a larger-than-projected 697,000 jobs last month.

The reports indicated that the economy’s contraction this quarter may be at least as big as the 6.2 percent annualized slide in the last three months of 2008. The ADP release reinforced forecasts for a Labor Department report tomorrow to show the highest unemployment rate since 1984.

At Congress yesterday, Geithner tempered his pessimism by noting that mortgage rates have come down, borrowing costs are lower for banks “than they would otherwise have been” and some commercial loan markets are starting to revive.

Effort Needed

Still, he said any recovery may take more time and more government aid, he said. “We’re at the beginning of that process and it’s going to take more efforts by us,” the Treasury chief told senators. “It’s going to require more carefully designed, appropriately conditioned capital from your government, as well as a much more powerful set of direct credit support to the markets that are critical for consumers and small businesses.”

The start of an economic recovery by year-end will depend on policy makers’ success, said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. in New York who formerly worked for the Fed.

“There is the risk that the policy moves aren’t successful and financial markets take another leg down if policy is perceived as not helpful,” Maki said.

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JEFFERSON CITY — Gov. Jay Nixon’s statements last week tossing cold water on the proposed AmerenUE nuclear plant bill must not have trickled down to the Missouri House.

A new version of the bill passed a utility hearing 12-1 on Tuesday. The bill would pave the way for a new $6 billion Callaway County nuclear plant by allowing the St. Louis-based utility to earn a return on its investment during the construction phase. Current law requires the utility to wait to recoup its costs until after the plant is up and running.

Many states, particularly in the South, are considering similar changes to their laws, as energy companies consider nuclear plants as part of their future instead of new coal plants. The Georgia Legislature passed a similar bill last week.

With such a lopsided committee vote, the bill is expected to have smooth sailing in the House, where Speaker Ron Richard has made it a top priority.

"I think if we put a good bill on the governor’s desk, he will sign it," said bill sponsor and committee chairman Rep. Ed Emery, a Lamar Republican.

On Friday, Nixon suggested that Ameren was getting ahead of itself in pursuing the change to the construction work in progress, or CWIP, law before actually obtaining the permit to build the nuclear plant. Previously, the governor had expressed his desire for the Public Service Commission to study the issue before legislators change the law.

But some believe Nixon wants the high-paying union jobs the nuclear plant would provide, as long as consumers are protected.

"He’s not going to give us a free pass," said lobbyist Irl Scissors, who represents pro-Ameren group Missourians for a Balanced Energy Future car loan rates. "His statements encouraged the parties to get back to the negotiating table."

Indeed, said Rep. Jake Zimmerman, D-Olivette, the substitute bill passed by the House committee is much better than what he called the "piece of junk" that had been submitted. He still has problems with the bill but believes they’ll likely be fixed in the Senate, where the more serious discussions about the bill’s future are taking place.

Zimmerman said the bill as passed out of committee has no chance in the Senate, where Republicans Brad Lager and Kurt Schaefer, as well as Democrat Joan Bray of University City, oppose many of the provisions as proposed.

"If the language stays how it is now, this thing is dead with a capital ‘D’ thanks to our friends on the Senate side," Zimmerman said.

The new version of the bill offers some of the consumer protection that advocates said was missing in the first version. It lengthens the time the PSC gets to approve a new plant from three months to six months. It moves the consideration of pre-construction costs to a regular rate case, which provides an opportunity for ratepayers to be protected if the plant isn’t built. And it ensures that should Ameren decide to sell the nuclear permit or the plant itself that ratepayers would not lose their investment.

The bill is House Bill 554.

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Apple Inc said on Tuesday it is updating its iMac and Mac mini desktop line of personal computers with prices starting at $599.

The new line of desktop computers includes a 24-inch iMac with twice the memory size and twice the storage of the previous generation 20-inch iMac, but is priced at the same$1,499.

The new iMac line includes one 20-inch PC and three new 24-inch iMacs priced between at $1,199 to $2,199.

The two new Mac Mini desktops measure at 6 low interest auto loans.5 inches by 6.5 inches by 2 inches and the price starts at $599 to $799.

The company also introduced a new Mac Pro desktop PC aimed at business users. The new Mac Pro starts at $2,499, $300 less than the previous Mac Pro.

(Reporting by Yinka Adegoke; Editing by Derek Caney)

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The number of "going concern" warnings by corporate auditors could hit an all-time high this year, as the U.S. recession has put the survival of hundreds of companies in doubt, the chief executive of accounting firm Grant Thornton predicted Thursday.

Every year, U.S. auditors are required to say when they have substantial doubt about whether a company can survive for another 12 months. Auditors’ so-called "going concern opinions" are included in companies’ Form 10-K annual reports filed with U.S. regulators, and sometimes can put companies in violation of their loan covenants.

"I’m sure we will see a very high percentage - much higher than ever before - of companies receiving going concern opinions," Ed Nusbaum, chief executive of Grant Thornton, said in an interview.

Auditors must make their decisions over the next few weeks, and Nusbaum, who heads the sixth-largest U.S. accounting firm, measured by revenue, said there is a risk that many will "get it wrong" this year.

"As we’ve seen over the last three or four months, markets can change so dramatically," Nusbaum said. "There’s no doubt that many going concern opinions will be issued for companies that will survive, and likewise there will be companies that don’t get going concern opinions that won’t survive."

Automaker General Motors Corp (GM, Fortune 500) said Thursday it expects to receive a going concern opinion from its auditors this year, but many more companies should also expect to receive such opinions, Nusbaum said.

While he did not have exact numbers, he said auditors have never before considered giving so many going concern opinions.

"So many companies are being dramatically impacted by the recession, whether it’s the fair market value of securities, or a slowdown in manufacturing or oil prices," Nusbaum said instant payday loans.

Nusbaum said investors should expect a slew of going concern opinions in automotive, manufacturing, financial services and retail companies.

In fact, the issuance of auditor going concern opinions has climbed sharply since 2001, according to a December study by professors at the University of Arkansas and Texas A&M University.

The study showed that going concern opinions were issued for 52% of distressed and subsequently bankrupt companies in 2001, and that the proportion rose to 72% after December 2001.

After the collapse of Enron and its auditor Arthur Andersen, the risk that auditors could be sued for failing to issue a going concern opinion is something that auditors keep in mind when making decisions about the issue, Nusbaum said.

"The risk of litigation is significant and in many cases the only option is to issue a going concern opinion … there is a legal motivation," Nusbaum said.

But ultimately the trouble in the credit markets and uncertainty about how the economy can recover has put both companies and auditors in a tough position this year, Nusbaum said.

"It’s based on estimates of what’s going to happen to the company. You’re looking at whether the company can survive, whether it has the ability to obtain credit, and what it means to survive," Nusbaum said.

All of those things are difficult to ascertain in the current environment. 

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Judging by your continuous e-mails and letters, taxpayers this year are more confused than ever.

I’ll focus today on the two issues you’ve asked about the most: the so-called recovery rebate credit and the additional standard deduction for property taxes.

Tax laws are complex and I can give only generalized information. Anybody with a specific issue or question should consult a qualified tax professional.

With that caveat, let’s tackle this representative question, which illustrates two misconceptions:
I’m confused. Are there two separate categories in the recovery rebate program? My wife and I are over 65 and did not itemize, and our property taxes were $5,000. So I think we are eligible for the $1,000 you wrote about. However, on the recovery rebate credit worksheet, it works out that we are to receive $1,200.

The first misconception is that you’re lumping together two separate things — the recovery rebate credit and the standard deduction for property taxes. Let’s take them one at a time.

—"…The recovery rebate credit amounts to a second chance for taxpayers who did not qualify for the economic stimulus payment from the government in 2008, or at least not all of it.

Last year, most Americans received checks from the government based on their income, number of dependent children and other factors reported on their tax returns for 2007. The maximum amount was $600 per person ($1,200 for joint filers) plus $300 per qualifying child.

Those who received the maximum amount last year, as I did, cannot claim the recovery rebate credit now.

But taxpayers with adjusted gross incomes above a certain limit ($75,000 for singles and $150,000 for married couples) received smaller payments or none at all last year. These taxpayers can now claim a credit for the amount they missed receiving provided they qualify now based on their income and other factors for 2008 low interest personal loan.

"So if your situation changed in 2008, you can still qualify if you didn’t get a check in 2008, or if you got a check for less than the maximum amount," said Harris Abrams, senior tax analyst for the tax and accounting business of Thomson Reuters. You may qualify, for instance, if you got laid off and made less money in 2008, or if you had or adopted a child.

Any credit this year would be used to reduce the tax you would otherwise owe on your 2008 return, or increase your refund.

The credit is "refundable," meaning you can get it even if you owe no tax or owe less tax than the credit amount. (For example, if your overall tax liability for 2008 is only $100 and you qualify for a $1,200 credit, you would get a $1,100 refund.)

—"…The additional standard deduction for property taxes, up to $500 for singles and $1,000 for married couples but no more than property taxes actually paid, is a separate tax break Congress approved for the 2008 and 2009 tax years.

The intent is to help homeowners whose property taxes and other itemized deductions are not enough to exceed the standard deduction. Contrary to another misconception, there are no age requirements to qualify (so you don’t have to be over 65).

Many of you — including three accountants — were confused because there is no separate line on the tax forms to report this additional standard deduction. You just add it to the total on line 40 of Form 1040. A 10-item worksheet on page 35 of the 1040 Form instruction booklet should guide you through the process.

AskHumberto@aol.com

2009, TRIBUNE MEDIA SERVICES INC.

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